I made a dreadful mistake when I bought Lloyds (LSE: LLOY) shares in 2023. I didn’t buy anywhere near enough of them. What was I thinking?

I obviously liked the stock. I’d tracked it for years, as the FTSE 100 bank pieced itself together after the financial crisis. The shares flatlined for years but with the clear-up work completed, I thought their time had come.

Yet the rest of the market didn’t see it my way. I thought it was a screaming buy, with a price-to-earnings (P/E) ratio of just five or six, and a price-to-book (P/B) ratio of 0.4. There was also a forward yield of more than 5%.

FTSE 100 growth star

I’m no better at timing the market than anybody else. It’s impossible to second-guess share price movements, in my view, but Lloyds seemed primed for lift-off. Worried I was missing something, I didn’t go all in.

I won’t be the only one kicking myself. When a top blue-chip like this one jumps 75% in a year, and 106% over two, plenty of investors will be annoyed they missed out. Yet even with the superpower of hindsight, I’m still a little baffled by just how brilliantly the Lloyds share price has done.

Obviously, it helps that it’s made a heap of money. In 2023, it announced a post-tax profit of £5.5bn, up more than 40% from £3.9bn in 2022. That’s when it really started motoring.

Yet the shares ploughed on even though profits dipped 20% in 2024 to £4.5bn. That was largely due to provisions for the motor-finance mis-selling scandal, for which Lloyds set aside £1.15bn. The other big FTSE 100 banks had largely escaped, so Lloyds trailed them for a while.

It’s still on the hook for compensation, but not as much as originally feared. And with the board finding the cash to fund a £1.7bn share buyback in February, investors decided it was good for it.

Yet Lloyds’ success is still surprising given its heavy exposure to the UK economy, which is hardly on fire right now. It’s the country’s biggest mortgage lender via subsidiary Halifax, but investors only need to look at the performance of housebuilding stocks to see the UK property market isn’t exactly booming.

Dividends, buybacks, growth

Like all the banks, Lloyds has benefitted from higher interest rates, which boosted net interest margins, a key profitability metric. But with the Bank of England expected to cut rates to 3.75% on 18 December, and at least twice more in 2026, that may fade.

So there are reasons why Lloyds shares have done well, but this well? I’m still a little baffled, although I’m not complaining.

They’re no longer the bargain they were. Today’s P/E is just over 15, while the P/B ratio has climbed to 1.25. The trailing dividend yield has fallen to 3.34%, although the board remains keen to reward shareholders, recently hiking the interim payout by 15%. So I’d expect that income to rise steadily over time.

I still think Lloyds shares are well worth considering with a long-term view. I just wouldn’t expect them to jump another 75% next year – but as I said, who really knows?